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DISCOVERY OF OIL

At the end of World War I, the Arab states of the gulf
were
weak, with faltering economies and with local rulers who
maintained their autonomy only with British assistance.
The
rulers controlled mainly the small port cities and some of
the
hinterland. The sultan in Oman claimed a somewhat larger
area,
but resistance to his rule made it difficult for him to
exert his
authority much beyond Muscat.

The discovery of oil in the region changed all this.
Oil was
first discovered in Iran, and by 1911 a British concern,
the
Anglo-Persian Oil Company (APOC), was producing oil in
Iran. The
British found oil in Iraq after World War I. In 1932
Standard Oil
Company of California (Socal) discovered oil in commercial
quantities in Bahrain. Socal then obtained a concession in
Saudi
Arabia in 1933 and discovered oil in commercial quantities
in
1938.

A flurry of oil exploration activity occurred in the
gulf in
the 1930s with the United States and Britain competing
with one
another for oil concessions. One reason for the increased
activity was that in 1932 the new Iranian government of
Reza Shah
Pahlavi revoked APOC's concession. Although the shah and
the
British later agreed on new terms, the threat of losing
Iranian
oil convinced the British in particular that they must
find other
sources. The small states of the Persian Gulf were a
natural
place to look. Geological conditions were similar to those
in
Iran, and, because of treaties signed between 1820 and
1920, the
British had substantial influence and could restrict
foreign
access.

Oil exploration did not mean immediate wealth for Arab
rulers
of the area. Although the oil companies struck large
deposits of
oil in Bahrain almost immediately, it took longer in other
countries to locate finds of commercial size. Oman, for
instance,
was unable to export oil until 1967. World War II delayed
development of whatever fields had been discovered in the
1930s;
so it was not until the 1950s that countries still
technically
dependent on Britain for their security began to earn
large
incomes. The oil fields in Kuwait were developed the
fastest, and
by 1953 that nation had become the largest oil producer in
the
gulf. Considerably smaller fields in Qatar came onstream
in
commercial quantities in the 1950s, and Abu Dhabi began to
export
offshore oil in 1962. Dubayy began to profit from offshore
oil
deposits in the late 1960s.

Until the 1970s, foreign companies owned and managed
the gulf
oil industry. In most cases, European- and United
States-based
concerns formed subsidiaries to work in specific
countries, and
these subsidiaries paid fees to the local rulers, first
for the
right to explore for oil and later for the right to export
the
oil. When the first arrangements were made, local rulers
had a
weak bargaining position because they had few other
sources of
income and were eager to get revenues from the oil
companies as
fast as possible. Moreover, in 1930 no one knew the size
of gulf
oil reserves.

As production increased and the extent of oil deposits
became
known, indigenous rulers improved their terms. In the
1950s,
rulers routinely demanded an equal share of oil company
profits
in addition to a royalty fee. By the 1970s, most of the
gulf
countries, which by then were independent of British
control,
bought major shares in the subsidiary companies that
worked
within their borders. By the early 1990s, many of these
subsidiaries had become completely state-owned concerns.
They
continued to employ Western experts at the highest
decisionmaking levels, but the local government had ultimate
responsibility and profits.